Situation 2 Current Designs is always working to identify ways to increase efficiency while becoming more environmentally conscious. During a recent brainstorming session, one employee suggested to Diane Buswell, controller, that the company should consider replacing the current rotomold oven as a way to realize savings from reduced energy consumption. The oven operates on natural gas, using 30,600 therms of natural gas for an entire year. A new, energyefficient rotomold oven would operate on 27,000 therms of natural gas for an entire year. After seeking out price quotes from a few suppliers, Diane determined that it would cost approximately $450,000 to purchase a new, energyefficient rotomold oven. She determines that the expected useful life of the new oven would be 8 years, and it would have no salvage value at the end of its useful life. Current Designs would be able to sell the current oven for $18,000 Instructions (a) Prepare an incremental analysis to determine if Current Designs should purchase the new rotomold oven, assuming that the average price for natural gas over the next 8 years will be $0.78 per therm. (b) Diane is concerned that natural gas prices might increase at a faster rate over the next 8 years. If the company projects that the average natural gas price of the next 8 years could be as high as $1.02 per therm, discuss how that might change your conclusion in (a).

Situation 2 (a) Prepare an incremental analysis to determine if Current Designs should purchase the new rotomold oven, assuming that the average price for natural gas over the next 8 years will be $0.52 per therm. Retain Oven Replace Oven Net Income Increase (Decrease) Variable mfg. costs New oven costs Proceed from scrapping old oven Total Based solely on financial considerations, Current Designs should (indicate by placing an "X" in the appropriate cell below) Retain Replace 8 Points Response: Situation 2 (b) Diane is concerned that natural gas prices might increase at a faster rate over the next 8 years. If the company projects that the average natural gas price of the next 8 years could be as high as $0.68 per therm, discuss how that might change your conclusion in (a). Net Income Increase (Decrease) Retain Oven Replace Oven Variable mfg. costs New oven costs Proceed from scrapping old oven Total Based solely on financial considerations, Current Designs should (indicate by placing an "X" in the appropriate cell below) Retain Replace 8 Points Response